Brokers Likely to Get a Break From Complicated Trump SEC Rules

(Bloomberg) -- Analysts see the U.S. Securities and Exchange Commission’s proposal to overhaul its conflict-of-interest rules for brokers as positive for the industry. At the same time, they caution that the proposal is lengthy and will take time to fully interpret.

  • Brokers and other cos. with exposure to original Dept. of Labor (DOL) rule are mostly gaining in early trading, with Schwab up 0.6%, BlackRock up 0.1%, E*Trade up 0.4% and TD Ameritrade up 0.3%
    • Morgan Stanley up 1.4% a day after reporting 1Q earnings that beat ests., while BofA is up 0.9%

Here’s a sample of analyst commentary:

Cowen, Jaret Seiberg

  • Sees proposal as positive for broker-dealers relative to DOL rule, but still expects pressure on high-fee, less-liquid products
  • Expects Trump’s DOL will formally withdraw its fiduciary duty rule once SEC rule is finalized (even though federal appeals court has already voided the rule)
  • Believes "this is going to get very political" as SEC Commissioner Kara Stein "previewed the attacks we will hear from Sen. Elizabeth Warren, Rep. Maxine Waters and other Democrats," arguing proposal doesn’t help investors as it doesn’t define best interest or offer new protections

Compass Point, Isaac Boltansky

  • "At first blush this proposal appears far friendlier to industry interests than the DOL’s previous construct as it seemingly provides brokers with comparatively greater operational flexibility"
  • Will take time for industry experts to comb through release to gauge precise impacts
  • Separately, Compass Point is watching Fed’s Randal Quarles testimony later for issues including cash carve-out for custodian banks included in the bank regulatory relief bill, utility of layering risk metric atop eSLR; clues about Fed’s regulatory priorities

KBW, Brian Gardner

  • Proposal was in line with KBW expectations; views it as "a general positive for the industry"
  • At the same time, market reaction may be muted, as investors may not have anticipated an "aggressive" SEC proposal

Capital Alpha, Charles Gabriel

  • Surprised by plans’ comprehensiveness; 90-day public comment period likely to lead to months of Commission reflection before next steps like another hearing; evaluating proposals to take time, depend on enforcement
  • Sees result netting out benign-to-positive for investors in broker-dealers, asset managers, insurers; proposals offer alternative to far-more-onerous (original) DOL fiduciary rule

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